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Prudential Regulation Consumer Financing 2

The Pro Readers > All Articles  > Prudential Regulation Consumer Financing 2

Prudential Regulation Consumer Financing 2

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Summary of Prudential Regulation for consumer 2

We have compiled summary of prudential regulation for consumer financing 2. Separate regulations for credit card, auto loan and personal loan are as follows;

Regulations for credit card

 

Regulation O-1

The banks should take reasonable steps to satisfy themselves that cardholders have received the card and advise them to keep the card safe and PIN secret.

Regulation O-2

After cardholders have served a notice that card has been lost or stolen, banks shall be held liable for all the transactions held after said notice.

However banks shall be liable for those amounts which are wrongly charged to the credit card holder account, the banks are advised to take insurance / takaful coverage for wrongly charged amounts and frauds.

The banks shall obtain consent via different sources likes recorded lines, ATM, Integrated Voice Recording, credit card application or form, for charging value added service.

Regulation O-3

Banks shall mention payment due date on account statement. The agreement must mention penalty amount in case of non-payment.

Regulation O-4

Foreign Currency Transactions

The bank shall convert foreign currency as per their approved policy, all the additional amounts are disclosed to the customer. In monthly statement the bank shall mentioned foreign currency amount, conversion rate including foreign exchange conversion fees and total transaction amount in PKR.

Regulation R-9

Classification and Provision

Classification

Determinant

Treatment of Income

Required Provision

Loss Principal / markup is overdue for 180 days or more Unrealized markup to be transfer in suspense account and not to credit to income unless realized in cash. 100% provision of difference of outstanding amount and liquid securities

 

Regulations for auto loans

 

Regulation R-10

These regulations are applicable on vehicles which are used personally including light commercial vehicles.

Regulation R-11

Maximum tenure of auto financing shall not exceed 7 years.

Regulation R-12

Minimum down payment should not be below 15% of the value of the vehicle. Financing shall be provided for amount which is ex-factory tax paid and cost of ancillary items like tracker and CNG kit. The premium charged by dealers or investors shall not be financed.

Regulation R-13

The vehicles financed by the banks are required to be secured by way of hypothecation. Payment shall directly be made to the manufacturer or authorized dealer by the bank and upon delivery the vehicle will immediately be hypothecated to the bank.

Regulation R-14

The banks shall all the time ensure that vehicle remains properly insured. However, in case of if 100% provision by the bank it may not insure it for remaining tenure.

Regulation O-5

The bank shall develop an appropriate procedure for repossession and subsequent disposal of vehicle. The specific default period after which repossession can be initiated must be mentioned in the agreement. The banks shall charge actual expenses of repossession to be listed in schedule of charges.

Regulation O-6

The bank shall return the registration file and issue a no objection certificate after repayment or settlement of financing.

Regulation O-7

The banks shall not finance used cars older than 9 years. The cars older than 5 years up to 9 years can only be financed if repayment is restricted within 12 years of such car age.

Regulation O-8

The banks has maintained panel list of authorized auto dealers in good numbers.

Regulation R-15

Auto loans shall be classified as follows:

 

Classification

Determinant

Treatment of Income

Required Provision

Substandard Principal / markup is overdue for 90 days or more Unrealized markup to be transfer in memorandum account and not to credit in income account unless realized in cash. 25% provision of difference between outstanding amount and liquid securities
Doubtful Principal / markup is overdue for 180 days or more As above 50% provision of difference between outstanding amount and liquid securities
Loss Principal / markup is overdue for 1 year or more As above 100% provision of difference between outstanding amount and liquid securities

 

Regulations for personal loans

 

Regulation R-16

Where financing has been extended to purchase a durable items including computer and accessories the same shall be hypothecated besides other securities.

Regulation R-17

The maximum tenure of the financing shall not exceed 5 years. Educational purpose loan is available for 7 years on the condition that direct disbursement is made to the educational institution.

Regulation R-18

In case of running finance it shall be ensured that at least 15% of maximum utilization of financing during the year is cleaned up by the borrower for a minimum period of one week. Otherwise, the facility shall be classified. However, where banks require their customers to repay a minimum amount each month, are compliant and there is no requirement of classification if aggregate cumulative monthly installments exceed 15% clean up requirement.

Regulation R-19

In revolving / facilities of similar nature, banks may renew the facility annually as per international industry practice and based on income profile, repayment behavior and credit line usage etc. provided:

  • During every 3 years, once complete assessment of borrower will be carried out and fresh documents are obtained.
  • Review of ECIB report and any overdue
  • Legal opinion stating existing legal documents are secure  

Regulation R-20

Excess amount deposited or repaid by the customer in revolving credit account shall be adjusted towards the loan account.

Regulation R-21

Classification

Determinant

Treatment of Income

Required Provision

Substandard Principal / markup is overdue for 90 days or more Unrealized markup to be transfer in memorandum account and not to credit in income account unless realized in cash. 25% provision of difference between outstanding amount and liquid securities
Loss Principal / markup is overdue for 180 days or more As above 100% provision of difference between outstanding amount and liquid securities

*The specific provision shall be in addition to general reserves.

 

Please also read 1st part on the same topic at below link.

https://theproreaders.com/2021/03/07/summary-of-prudential-regulation-of-consumer-financing-1-2/

Related Articles:

https://theproreaders.com/2021/03/07/summary-of-prudential-regulation-of-consumer-financing-1-2/

Reference:

https://www.sbp.org.pk/publications/prudential/PRs-Consumer.pdf

Ali Murtaza

1 Comment

  • Dua Batool
    Reply March 7, 2021 at 19:43

    Round of applause @alimurtuza for creating such an amazing and professional website ! 👍🏻

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